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A Structured Settlement Payment Vs. Lump Sum Payments

You’ve been in an accident and you’re entitled to a settlement. Traditionally lump sum payments were the only way responsible parties had to pay accident claims. Today, a structured settlement payment opens up a whole new opportunity for injury victims.

A structured settlement payment essentially offers the injured party cash payments via a long-term annuity. This form of compensation covers damages and medical expenses, and for many victims it has numerous advantages over receiving a lump sum payment.

One of the greatest advantages of a structured settlement payment is that the injured party receives a steady income for an agreed upon time frame. This length of time could be limited to a few short years or could last the victim’s lifetime. It all depends on the severity of the accident, the amount of dollars involved and what the particular agreement is.

The circumstances of each case is different and as a result, a structured settlement payment may not be preferred over a lump sum payment in all cases.

A structured settlement payment is regulated for inflation. In other words, the sum of all the payments distributed as part of the settlement would be greater than if the amount was paid in the form of a lump sum.

And because a structured settlement payment would come out of an annuity that was purchased upfront, the party responsible for paying would actually owe less than the sum of the payments.

Being tax free is another advantage to a structured settlement payment. Due to a change to the Federal tax code in the early 1980’s any payments are free of both state and Federal taxes.

The purchased annuity earns the interest which in turn funds the continued payments whereas in the case of a lump sum payment, the injured party would have to invest the money themselves. The disadvantage of a lump sum payment here would be that any interest earned on such investments would be taxed.

For injury victims, a structured settlement payment is also less overwhelming than coming into a lot of money and having to deal with long lost relatives who have come out of the woodwork upon hearing the settlement news.

When settlement money is received in smaller amounts, there are far less worries about being taken advantage of by unscrupulous relatives or people you may have entrusted to invest your money on your behalf.

Overall, a structured settlement payment is simple and easy to manage. You can count on the regular payments and instead of worrying about your investments, you can focus on your recovery or adjusting to any permanent changes in your lifestyle.

The downside however is that with a structured settlement payment you don’t have the luxury of purchasing a new home or being able to pay off expensive medical bills all in one shot. That said, such a payment plan can balance things in your favour over the long term.

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